Last time we talked, you said that out of this crisis we will see more directive oversight by capitalist states, and we might even see something you called "the social-democratisation of globalisation". Do you see things going that way? And what will it look like?

With all the calls for regulation; with states buying shares in banks, not taking any directive control over them, but using moral suasion the way Brown has been doing to get them to reduce interest rates as the Bank of England reduces interest rates; with the kind of fiscal stimulus programmes that all the governments are committed to - the British and the Americans, interestingly, more than the Germans - I think you are getting a "social-democratisation of globalisation".

Bear in mind that my view of "social-democratisation" is that it is in no sense the old type of reformist, gradual socialism. It is "social-democratisation" in the sense of what the Labour Party has become under Blair and Brown.

So this is not social democracy as in the 1940s, 50s, and 60s?

No. I never had a very positive view of that in any case. That orientation was more about corporatist arrangements with labour. I don't see much of that going on. I see that it's unlikely that Obama will press for the labour legislation that US unions have been calling for. That would be more like an old-style social-democratisation.

The governments are trying to put into practice everything that economists can suggest to them, in the way of stabilisation policies, that they have learned from the study of the 1930s and from the depression in Japan in the 1990s. How would you assess the possibilities, the limits, and the defects of these as stabilisation policies?

We have seen massive drops of liquidity into the banking systems. We have seen it being decided that the problem is solvency, not liquidity, and the governments putting public capital into the banks, so that the banks will have enough trust in each others' solvency to lend to each other. None of this is solving the crisis.

This indicates that the banks may not be able to go back to lending at their previous rates. The decades-long process of banking and financial-system securitisation, where lending has been done on the basis of slicing and dicing and repackaging loans so as to turn them into securities to be traded internationally, was a fundamental basis for the dynamism of financial capitalism and globalisation in the last twenty years or more.

That system of securitisation is now weak everywhere, even in corporate financing, and not only in the financing of mortgages and consumer debts. It has largely imploded. That is in large part why the banks have not been lending - they have been restructured to depend on doing lending through that securitisation.

That indicates that the crisis is really very severe. In terms of what is to be done about it, it raises - and we should be raising, as socialists - the obvious question of converting the banks into a public utility.

In a complex society, you can't have banking for the masses without having state guarantees of deposits. The system has been kept going on the basis of central banks acting as lenders of last resort. The case for the banks being brought into public ownership properly needs to be put on the agenda, much more vociferously than the left is putting it on the agenda.

I do not mean, as in Britain, just giving public capital to the banks and saying please operate on commercial lines, a move involving no executive powers whatsoever. I mean taking the banks properly into public ownership and changing the function of the banks, as Mitterrand did not do in France in the 1980s, so that the criteria on which they invest are redefined as social purposes, to be democratically determined.

Looking back on it, the subprime mortgage crisis seems to involve tiny sums, compared to the fall-out now. How did that subprime crisis - sizeable, but small compared to what is in play now - produce such huge repercussions?

The subprime crisis was comparatively small, but subprime mortgages were packaged with other mortgages and then the securities were sold on. People were buying general mortgage-backed securities based on a mixture of mortgages. When the defaults started in the subprime sector, it became difficult to sell, or to sell on, any mortgage-backed securities.

It had the effect of making the banks more reluctant to lend for new mortgages, and that helped burst the house-price bubble. Then the loans made more generally on the basis that house prices would continue to rise were called into question. You got a vicious circle in the whole housing and mortgage sector.

Once you had this loss of confidence, and inability to value securities - you didn't know how to value those securities any more, because you couldn't sell them; the formulas on which the valuations of those mortgage-backed securities fell down - then a whole set of questions came onto the books in respect to other sorts of securities and how those might be valued.

Here there is an element of confidence and psychology. However much we as Marxists see that as not primary, it is an element. The banks knew damn well how over-leveraged they all were. They began to wonder whether even the people they lend overnight to - the other banks - were solvent. They became reluctant to lend.

And so the disturbance moved beyond the original source of the problem. Insofar as the risk was spread so widely - and that was the point, credit was cheap because risk was spread so widely - it pulled in vast sectors in other countries and across the world.

You could say that the crisis was triggered by the subprime crash. There is a certain racist element to the story, insofar as the growth of subprime mortgages was the attempt to incorporate the black working class through finance into the American dream. When that weakest link in the chain of financial capitalism went, then - unlike when Lenin used the metaphor of the weakest link for Russia in the chain of world capitalism - it began to undo the whole chain.

A few months you said that you thought US hegemony had not waned, and would not wane in the very near future. I agreed with that then. But you compared that US hegemony with the sort of hegemony that a financial centre like New York or London has in its national economy. It used to be the case that the global financial markets, centred in New York, centred round the dollar, were where any large capitalist anywhere in the world could go for credit. Isn't that ceasing to be true? Aren't governments and firms looking elsewhere for credit? Aren't we seeing the beginning of that process of US hegemony waning?

I don't think so. I'm not sure where else people would go for credit. And in fact capital has flowed to the dollar and to the US Treasury Bill. That is puzzling unless you understand that the US state is the state of global capital. Despite everything that has happened, global capital still looks on the US as the safest haven and the ultimate guarantor. And the US government has behaved that way. The decisions to nationalise Fannie Mae and Freddie Mac and AIG were taken very much with an eye to the US's responsibility to honour its commitments to China and Japan and Germany and Britain - above all to China, because the Chinese had bought a lot of Fannie Mae and Freddie Mac securities.

The American state is absolutely central. It is no accident that the G20 meeting took place in Washington. Everyone sees that whatever resolution there is to this crisis will have to be undertaken under the aegis of the American state, and everyone is hoping that Obama will be able to provide the kind of leadership - for capitalists - that will accomplish that.

So I think the American state is still very much at the centre of global capitalism. The material underpinnings of that hegemony have rested in part on New York as a financial centre. So it's a good question, what happens to that hegemony if New York seizes up as a financial centre? But I just don't see what could conceivably replace it. Certainly nothing in Asia could replace New York as a financial centre. People can start arguing that the Chinese state has financial clout, but we see how much the Chinese economy has been affected by this crisis originating in the US economy.

It will certainly be an enormous challenge for the Americans to hold it all together. But it is only the Americans that can hold it all together; and all the world's capital, more than ever, is looking to the Americans to hold it all together.

But if the US government does it very imperfectly...

Yes, but I don't see any grounds for serious inter-imperial rivalry unless there are fundamental changes in the balance of class forces and state structures in other parts of the world, so that countries move in a national-socialist, fascist direction which would break down globalisation, or there is the kind of change in class relations that would put socialist options on the agenda, which would mean disarticulating from capitalist globalisation and attempting to re-articulate on the basis of new international socialist strategies. On the basis of the class configurations that exist in the regions outside North America, I don't see either of those things happening soon.

The question remains of whether the Americans will pull it off. If they don't, will that produce social and political disruptions that would lead to something else? Maybe. But on the basis of the current configurations, with the types of capitalist classes and state bureaucracies that are oriented to maintaining the relationships that have developed over the last 30 years under global capitalism, I don't think we can speak seriously of inter-imperialist rivalry.

December 2008. Leo Panitch has been editor of the annual Socialist Register in recent years. He is also the author of many books and articles, most recently (with Martijn Konings) American Empire and the Political Economy of Global Finance, Palgrave Macmillan 2008, paperback edition due later this year. He is active in the Socialist Project group, http://www.socialistproject.ca/, and is a professor at York University, Toronto.
Leo Panitch suggested the scenario of "the social-democratisation of globalisation" in an article in the US magazine Monthly Review, 50/5, October 1998. The article was a discussion of the World Bank's World Development Report for 1997, The State In A Changing World.
In the fresh days of neo-liberalism, it was all for "rolling back the frontiers of the State", as Margaret Thatcher put it in 1980. But now, Panitch noted, "the World Bank advocates a large role for the state in correcting and protecting markets", and worries about countries "overshooting the mark" in the direction of the "minimalist state".
This is social-democratisation, however, in the sense of 1990s European social-democracy - which led 14 out of 15 EU governments at the time of Panitch's writing - or the Clinton Democratic Party in the USA.
It is for:

"privatisation in general... especially the 'hiving off' of utilities and social insurance";

"liberal trade, capital markets, and investment regimes";

market provision of welfare, albeit with a safety-net for the poorest: "even in the areas of urban hospitals, clinics, universities, and transport... the report takes the view that markets and private spending can meet most needs, except for those of the very poorest...";

"the regressive shift in taxation from corporate and personal income taxes, and trade taxes, towards consumption-based taxes like VAT";

central bank independence, geared to restraining inflation.

It is distinguished from the most gung-ho neo-liberalism in wanting:

"not... a minimal state, but rather an efficient capitalist state";

strong regulation of the financial sector, not for "channelling credit in preferred directions" but for "safeguarding the health of the financial system".